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Medicaid expansion leads to financial benefits in hospitals

Hospitals in states that expanded Medicaid experienced reduced uncompensated care costs and increased revenue compared with hospitals in states that did not expand Medicaid, according to data published in JAMA.

Fredric Blavin, PhD, from the Urban Institute, reported that hospitals in states that expanded Medicaid also had larger financial margins.

"When the Affordable Care Act (ACA) was passed in 2010, it mandated the expansion of Medicaid (effective Jan. 1, 2014), increasing eligibility for nearly all U.S. residents with household incomes up to 138% of the federal poverty level," Blavin detailed. "However, the U.S. Supreme Court struck down the mandatory expansion of Medicaid in 2012 and ruled that each state could choose whether to expand this entitlement program. As of July 2016, 30 states and Washington, D.C., have elected to expand Medicaid, whereas 20 states have not. In March 2016, 72.5 million individuals were enrolled in Medicaid or the Children’s Health Insurance Program compared with the 57.4 million who had been enrolled just prior to Medicaid expansion."

Blavin conducted an observational study to evaluate the association between Medicaid expansion and hospital finances, noting that previous research did not determine one.

He reviewed data from the Health Care Cost Report Information System from CMS and the American Hospital Association Annual Survey between 2011 and 2014. This included 1,200 to 1,400 hospitals each fiscal year for 19 states that expanded Medicaid and 2,200 to 2,400 hospitals each fiscal year for 25 states that did not expand.

Results showed that Medicaid expansion was associated with a reduction in mean annual uncompensated care costs in each hospital of $2.8 million (95% CI, –4.1 to –1.6 million; P < .001). Compared with hospitals in states that did not expand Medicaid, those in states that did expand reported an increase in mean annual Medicaid revenue of $3.2 million (95% CI, 0.9-5.6 million; P = .008).

In addition, Blavin found that Medicaid expansion was associated in increased excess margins (1.1 percentage points; 95% CI, 0.1-2 percentage points; P = .04). Medicaid expansion was not associated with improved operating margins (1.1 percentage points; 95% CI, –0.1 to 2.3 percentage points; P = .06).

"The hospitals located in the 19 states that implemented the Medicaid expansion had significantly increased Medicaid revenue, decreased uncompensated care costs, and improvements in profit margins compared with hospitals located in the 25 states that did not expand Medicaid," Blavin concluded. "Further study is needed to assess longer-term implications of this policy change on hospitals’ overall finances." – by Chelsea Frajerman Pardes

Disclosure: Blavin reports no relevant financial disclosures.